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Research & Commentary: Maine’s Proposed Cigarette and Vape Taxes Would Hurt the Poor, Threaten Harm Reduction

April 23, 2019

Proposed legislation would increase the state's excise tax on cigarettes to $3.50 per pack and apply an 81 percent wholesale tax on e-cigarettes and vaping devices.

Legislation in Maine would increase the state’s cigarette excise tax and apply a wholesale tax to e-cigarettes and vaping devices. Legislative Document 1028 aims to increase the state’s cigarette tax from “$2.00 to $3.50 per pack of 20 cigarettes,” and it would increase the tax on other tobacco products to 81 percent “of the wholesale sales price.” It would also include e-cigarettes in the state’s definition of “Other Tobacco Products.”

Lawmakers intend to use $11 million of the expected generated revenue to fund “prevention and cessation” efforts in Maine. Although intending to reduce tobacco smoking rates is laudable, cigarette taxes should be avoided because they disproportionately burden lower-income people and often do not result in healthier communities. Moreover, lawmakers should not enact sin taxes on e-cigarettes and vaping devices because these products are tobacco harm reduction tools that have helped millions of American adults quit smoking.

Existing research shows cigarette taxes disproportionately impact lower-income persons. For example, a Cato Journal article notes that from 2010 to 2011, “smokers earning less than $30,000 per year spent 14.2 percent of their household income on cigarettes, compared to 4.3 percent for smokers earning between $30,000 and $59,999 and 2 percent for smokers earning more than $60,000.”

Raising the excise tax on cigarettes would likely increase smuggling and out-of-state purchases of cigarettes. Maine already has the 15th highest cigarette taxes in the nation, according to the Tax Foundation. L.D. 1028 would make Maine’s tax the fifth highest.

This is especially problematic because neighboring New Hampshire taxes cigarettes at $1.78 per pack, significantly less than Maine’s proposed tax. If Maine lawmakers do raise the state’s cigarette taxes, increasingly more Mainers will likely travel across the border to New Hampshire to buy their tobacco products.

Even more importantly, taxing electronic cigarettes and vaping devices would be a disservice to public health. Of the 10 million adult vapers in the United States, an estimated three million have used e-cigarettes to quit smoking. A recent study in the New England Journal of Medicine found e-cigarettes to be “twice as effective as nicotine replacement therapy in helping smokers quit.”

Existing literature also finds the use of vaping devices could save governments money. R Street Institute analyzed what would occur if 1 percent of Medicaid recipients that smoke tobacco cigarettes were to switch to e-cigarettes. In its analysis, R Street found Medicaid savings would be “approximately $2.8 billion per 1 percent of enrollees” over the next 25 years.

E-cigarettes also generate revenue for state and local economies. One analysis found vape shops “generate annual non-online sales of more than $300,000 per store.” And the industry is expected to continue to grow in the coming years. Online sales of e-cigarettes increased by 41.3 percent from 2017 to 2018, from $345 million to $487.7 million. The global electronic cigarette market “is estimated to reach $44,610.6 million by 2023.”

It is interesting lawmakers in Maine want to increase the state’s cigarette tax to pay for “cessation and prevention,” when the state spends little of the money it receives from tobacco settlements on such efforts. In 2018, Maine earned an estimated $196.8 million in tobacco settlement payments and taxes, yet only spent $5.3 million, or 2.7 percent, on prevention and cessation efforts. For fiscal year 2019, Maine dedicated even less to tobacco prevention: $4.8 million of $188.5 million, or 2.6 percent.

Rather than imposing draconian taxes on vaping products and increasing the state’s already high cigarette tax, lawmakers should reform how they currently spend tobacco funds.

The following articles provide more information about sin taxes and tobacco harm reduction.

Three Reasons to Avoid Tobacco Taxes
http://www.commonwealthfoundation.org/policyblog/detail/three-reasons-to-avoid-tobacco-taxes
Elizabeth Stelle of the Commonwealth Foundation examines Pennsylvania’s proposed tobacco tax hikes. Stelle argues they are the wrong prescription for the state, and she outlines several reasons why they are harmful.

Cigarette Taxes and Smoking
https://www.heartland.org/policy-documents/cigarette-taxes-and-smoking
In this study from the Cato Institute, Kevin Callison and Robert Kaestner suggest future  cigarette-tax  increases will offer relatively few public health benefits, and they say the justification given for future taxes should be based on the public finance aspects of cigarette taxes, such as the regressiveness, volatility, or the rate of revenue growth associated with those taxes.

Research & Commentary: Top Ten Reasons Not to Raise Tobacco Taxes
https://heartland.org/policy-documents/research-commentary-top-ten-reasons-not-raise-tobacco-taxes
Heartland Institute Government Relations Director John Nothdurft argues targeted tax increases serve only to push sound fiscal policies and real budget reforms to the public policy back burner. Legislators concerned about the public health effects of tobacco should encourage the use of readily available smoking cessation products and services instead of supporting bad tax policy.

Five Things to Consider Before Raising Tobacco Taxes: A Review of the Research
https://heartland.org/policy-documents/five-things-consider-raising-tobacco-taxes-review-research
This Heartland Institute Policy Brief argues, “Tax increases above current levels are not justified by appealing to the costs smokers impose on nonsmokers. Smokers already pay more than this measure could justify.”

Vaping, E-Cigarettes, and Public Policy Toward Alternatives to Smoking
https://www.heartland.org/publications-resources/publications/vaping-e-cigarettes-and-public-policy-toward-alternatives-to-smoking
For decades, lawmakers and regulators have used taxes, bans, and burdensome regulations as part of their attempt to reduce the negative health effects of smoking. Recently, some have sought to extend those policies to electronic cigarettes. This booklet from The Heartland Institute urges policymakers to re-think that tax-and-regulate strategy. Policymakers should be mindful of the extensive research that supports tobacco harm reduction and understand bans, excessive regulations, and high taxes on e-cigarettes often encourage smokers to continue using more-harmful traditional cigarette products.

Research & Commentary: Randomized Trial Finds E-Cigarettes Are a More Effective Smoking Cessation Tool than Nicotine Replacement Therapy
https://www.heartland.org/publications-resources/publications/research--commentary-randomized-trial-finds-e-cigarettes-are-more-effective-smoking-cessation-tool-than-nicotine-replacement-therapy
In this Research & Commentary, Lindsey Stroud, a state government relations manager at The Heartland Institute, examines a study in The New England Journal of Medicine that shows e-cigarettes and vaping devices are twice as effective as nicotine replacement therapy (NRT) in helping smokers quit using tobacco cigarettes. Nearly 700 participants were studied during a 52-week period. Researchers found that 18 percent of e-cigarette users reported abstinence, compared to 9 percent of those using NRT. Stroud wrote that “these latest findings provide more valuable information on the public health role that e-cigarettes and vaping devices provide for the 38 million cigarette smokers in the United States,” and she implores policymakers to regulate these devices in a way that promotes, rather than prohibits, their use.

Research & Commentary: Vaping Taxes Do Not Deter Youth Use of E-Cigarettes
https://www.heartland.org/publications-resources/publications/research--commentary-vaping-taxes-do-not-deter-youth-use-of-e-cigarettes
In this Research & Commentary, Lindsey Stroud, a state government relations manager at The Heartland Institute, examines the effects of Pennsylvania’s 40 percent wholesale tax on youth vaping, enacted in 2016. Using data from the Pennsylvania Annual Youth Survey, Stroud found the tax did not curb youth e-cigarette use. In fact, from 2015 to 2017, use of e-cigarettes by young people increased in Pennsylvania.

Nothing in this Research & Commentary is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. For further information on this and other topics, visit the Budget & Tax News website, The Heartland Institute’s website, our Consumer Freedom Lounge, and PolicyBot, Heartland’s free online research database.

The Heartland Institute can send an expert to your state to testify or brief your caucus; host an event in your state; or send you further information on a topic. Please don’t hesitate to contact us if we can be of assistance! If you have any questions or comments, contact Arianna Wilkerson, a state government relations manager at The Heartland Institute, at awilkerson@heartland.org or 312/377-4000.

Author
Lindsey Stroud is a state government relations manager at The Heartland Institute.
lstroud@heartland.org